Cheng Chang Shoes Industry Co. (0001376866)

On October 19, 2010 Cheng Chang Shoes became a public entity via a reverse merger transaction.

On October 19, 2010, we entered into a securities purchase agreement, or the Securities Purchase Agreement, with an investor whereby we issued 2,547,500 shares of our common stock for an aggregate purchase price of $4.5 million, or $1.77 per share. Under the Securities Purchase Agreement, we agreed to register the shares of our common stock issued to the investor within a pre-defined period. 

Company Snapshot:

Engaged in the business of designing, producing and selling high quality soles used to manufacture athletic and leisure shoes

Industry Snapshot:

• Greater health awareness and favorable government policies. We believe that the overall Chinese population is generally growing more health conscious and fitness oriented. The PRC government has implemented the Nationwide Physical Fitness Program which we believe will continue to promote awareness of good health, exercise and fitness and will contribute to the growth of the PRC sportswear market.

• Changing consumer consumption pattern. As a result of the growing affluence in the PRC and increased purchasing power of the PRC population, we believe that PRC consumers are becoming more willing and able to purchase multiple pairs of specialized athletic shoes designed for different sporting and fitness activities. In addition, we believe that the purchasing decision of PRC consumers is becoming more predicated upon functionality, brand image, product design and style, rather than just price considerations.

• Demand driven by high-profile sporting events. The demand of sports footwear in the PRC has been and will continue to be boosted by high-profile sporting events in China, such as the 2008 Beijing Olympics, the 2009 East Asian Games in Hong Kong, the 2010 Asian Games in Guangzhou and the 2011 World University Games. All these sporting events have contributed to a growing interest in sporting and fitness among citizens, which we believe will help to drive increased PRC demand for sportswear, particularly sports footwear.

Post Merger Share Calculation:

•      459,900: Pre reverse merger outstanding shares
• 31,059,267: Newly issued shares of Common Stock

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  31,518,267

Financial Snapshot:

• Our revenues grew 46.1% from $17.87 million in fiscal year 2009 to $26.11 million in fiscal year 2010.

• Our operating income grew 71.7% from $5.5 million in fiscal year 2009 to $9.4 million in fiscal year 2010.

• Our net income grew 75.0% from $3.9 million in fiscal year 2009 to $6.9 million in fiscal year 2010.

In connection with the Securities Purchase Agreement on October 19, 2010, our Chairman and CEO Mr. Zhuang entered into a make good escrow agreement, or the Make Good Escrow Agreement, whereby Mr. Zhuang pledged to several other parties, including the investor, 7,492,154 shares of our common stock owned by him in support of the Company’s obligation to satisfy a pre-established after tax net income level. All or a portion of the shares pledged pursuant to the Make Good Escrow Agreement will be transferred to the beneficiaries of the make good arrangement if the Company does not satisfy the after tax net income threshold. The shares will be returned to Mr. Zhuang if the threshold is met.

Make Good Target:

After tax net income for the six month period ended December 31, 2010: RMB45,997,157 (approximately $6.97 million).

The company reported net income of 6,913,587 for its June ending 2010 fiscal period.